Who’s buying our debt?

Date posted: November 15, 2012

It’s well known that the United States relies on foreign buyers to purchase much of the government debt used to fund the ongoing deficit. But has the composition of the debt buyers changed recently? N.C. State University economist Mike Walden responds.

“It really has …. Of course, China has been a big buyer of our debt in recent years. And China announced about a year ago that they wanted to diversify — they wanted to go buy other things. That caused a lot of hand-wringing and, well, gosh, if China doesn’t buy our debt, who is? And what’s that going to mean for interest rates et cetera?

“At the same time …, we saw our Federal Reserve, which has also been a big buyer of our debt, pull back. So, we’ve had a big test over the last year of if the two biggest buyers of our debt — China and the Federal Reserve — didn’t buy that debt, what would happen?

“Well, what happened is another buyer stepped in. What we’ve seen in the data is Japan has now moved in. They have been the biggest buyer of our debt in the last year. And as a result the federal government has been able to issue debt. It’s been able to sell it (without) not much consequence on interest rates.

“And I think the reason here is despite all of our fiscal issues, federal government debt — U.S. federal government debt — worldwide is still viewed as a very safe investment, and so someone, again in this case Japan, has stepped up to the plate.”

Archives

About Economic Perspective:

Economic Perspective, featuring N.C. State University economist Mike Walden and host
Mary Walden, focuses on economic issues facing North Carolina and the nation. The 1- to
2-minute segments are issued each week day.